NBA says don’t call it an integrity fee; league argues it deserves “royalty” for casinos profiting off its product Buck Wargo, CDC Gaming Reports · April 23, 2018 at 12:01 am The assistant general counsel of the NBA said Friday that the league deserves compensation as sports betting expands nationwide as a “royalty” for the profits it generates for casinos offering betting on its games. In a rare public panel appearance, Dan Spillane said the NBA “doesn’t call it an integrity fee,” which has been the tagline used by the media since Spillane testified, in written testimony in New York State in January, that the league would seek one percent of all handle on NBA betting action. That generated a lot of national headlines and derision from the casino industry, as well as from some writers who considered it a money grab by the league for doing nothing while their game has already benefited from betting. Spillane, speaking at a panel discussion on sports betting sponsored by the National Indian Gaming Association convention in Las Vegas, said the term ‘integrity fee’ is in the language of pending bills, but the label matters. The fee isn’t only about reimbursing the league for expenses to monitor betting, but compensating the league for its product, he said. “It’s a ‘sports betting rights and integrity’ fee,” Spillane said. “It’s a royalty in a way… These are our games. (They) are the backbone of the whole business of sports betting, and we think it makes sense for us to be compensated. We’ve invested billions of dollars in creating this product. You can’t have sports betting without our game. We generate a lot of fan interest … that translates into people participating in sports betting. We think it’s reasonable for us to be compensated for that input just like every other supplier.” There is an integrity fee component because there is a “risk to our business” when betting is offered, even in a regulated market, Spillane said. “The risk from (a potential) sports betting scandal or integrity incident would be devastating to our brand,” Spillane said. “People (need to) trust that the competition is fair and real… we think it makes sense that we should be compensated for (that) risk.” The NBA will have to spend more money on investigations scrutinizing betting and suspicious activity, Spillane said. It will hire companies to monitor betting activities and hire more people to do investigations. There will also need to be more education and training for players and staff. “If betting becomes widely legal, that is going to cost money,” Spillane said. “The integrity fee is intended to cover those expenses.” Not everyone, however, is on board with the proposed fee. It’s been met with some hostility from both state legislatures and casino operators. Deborah Skenandore-Thundercloud, chief of staff for NIGA, said that the association’s views on any potential integrity fee are similar to those of the American Gaming Association – namely, that additional fees reduce the amount of revenue that can be obtained through sports gaming, which on average has a 5 percent margin. “That makes it less viable for us as an amenity, so I think there needs to be more discussion and compromise,” Skenandore-Thundercloud said, adding that Indian gaming is an industry that’s already heavily regulated. “We have federal, state and tribal regulation, and if we put a lot of dollars into that and (also) fees for other entities participating, it is not fair to us.” Aurene Martin, president of Spirit Rock Consulting and a member of the Bad River Band of Lake Superior Chippewa, said there are questions about whether an integrity fee can be applied to tribes at all, as a matter of federal law. “IGRA (the Indian Gaming Regulatory Act of 1988) is very clear that tribes can’t be taxed and can only have fees put upon them that they agree to, with the state, to pay for regulator activities. Nowhere are tribes allowed in IGRA to pay third parties this type of fee. There are real questions about whether it can be imposed on them. Tribes want to be responsible and make sure games have integrity, so I don’t know what the answer is.” Spillane said the discussion of the integrity fee tends to occupy a lot of attention, but areas of agreement on how sports betting should be legalized far outnumber areas of disagreement. That includes game integrity and driving the illegal market out of business, or at least reducing its size. No one wants to overregulate and overtax the gaming business, he said. “We are in harmony with that,” Spillane said. “It is in our interest for legal operators to be able to complete with illegal operators. We’re not looking to create an excessive burden and make it difficult for them to compete with offshore (options).” Sports book operators have said there is a five percent hold on all sports wagers. A league demanding one percent of total wagers would thus be 20 percent of their total profits. Spillane said there’s a “friendly disagreement” over what the margins are likely to be in a “fully rolled-out” betting market. “Set aside what the hold percentages are on betting revenue,” he said. “That is a different percentage than the operating margin. It is a healthy business, and there is a lot of value there.” Daniel Wallach, a sports and gaming attorney with South Florida firm Becker & Poliakoff, said that the discussion about the integrity fee and the concerns raised by the gaming industry about their margins overlooks the fact that legalized sports betting will likely bring in more customers who will then spend money on other amenities like hotel stays and dining, in addition to gambling on slots and table games. The “economic upside has to be viewed as much more macro (than just) the sports book operating margin,” Wallach said. The casino industry has argued that professional sports leagues don’t need any extra money when fan engagement will “go through the roof” and television ratings will rise after legalization. The same argument can be made with the commercial gaming industry, he said. “There’s no question this will raise the pie for everybody,” Wallach said. “You rarely see a situation where commercial gaming gives away anything for free. It’s a matter of trying to find the price that makes sense for everybody.” Some twenty sports gambling bills have introduced in states since Jan. 1, but only four states – West Virginia, Pennsylvania, New Jersey and Mississippi – have passed sports betting language so far, and West Virginia is the only state where the bill has been signed by the governor, Wallach said. “No matter who is right or wrong, the collateral damage from the disagreement will play out in state legislatures,” Wallach said. “The disagreement and push and pull between the league and casino industry will undermine the success of any proposed piece of legislation. You have to ask yourself a fundamental question: is the fight over a quarter of a point or eighth of a point worth the fallout of not getting anything passed. “I think the leagues are starting from an even point with the casino industry, but what price will be paid if we don’t find common ground? You’re not going to see much legislation passed on the state level right now,” he said. “We’re heading toward June and we only have four states, really, in place to offer legal sports betting, even though everybody in this room pretty much assumes the Supreme Court will open the floodgates before the end of June. Part of the reason (more states aren’t ready) is a lack of consensus on some of these measures.” Spillane, who said such fees are collected from casino operators in France and Australia, said he would collect a fee from Nevada casino operators who take NBA bets if he could. He said the league believes it’s being reasonable in its request for a fee, but as for the amount, “we’re happy to talk.” There’s a parallel benefit for both the sport and the gaming, Spillane said. On the sports side, fan engagement should increase because people tend to watch more games and watch them longer when betting or playing fantasy sports. “On the gaming side, when there’s sports betting, people are coming to your properties and that might have otherwise not come,” Spillane said. “I have been here (in Vegas) for March Madness and stood for in an hour-long cab line to get to the hotel because so many were coming in. Even if it’s break-even for sports books, people coming in to stay at hotels and eat and play slots is an economic value itself. There are ancillary benefits on both sides.” The NBA hasn’t always held this position. Spillane explained the evolution of the league’s view on sports betting, saying that, after conducting a study a couple of years ago, it came to the position that it would support legal and regulated sports betting that protects both the integrity of the game and its fans. “The leagues kept their distance, like we did here in Nevada, when sports betting was put in place decades ago,” Spillane said. “That was the wrong move. We’re not going to make that mistake again. We are going to be engaged in the process.” The NBA prefers a federal legislative solution, which would be forthcoming if the Supreme Court overturns the existing federal ban on full-fledged sports betting outside of Nevada, rather than a state-by-state approach. A decision on the New Jersey case that prompted civil action against the 1992 Professional and Amateur Sports Protection act is expected by the end of the Supreme Court’s term in June. “A federal framework makes sense for us,” Spillane said. “As a national organization that operates in half of the states in the country, we have an interest in consistency, uniformity and establishing minimum baselines when it comes to integrity and consumer protection. It would just be a lot easier to do with a federal solution.” While the NBA is taking a wait-and-see approach, the league has been active in the state legislative process that is already underway, to ensure it has a “voice in that discussion and a seat at the table,” Spillane said. “This is where our energy has been focused since the start of the year. We want to do this in a way that protects our sport.” The NBA backs mobile betting in any legislation to shift people from illegal betting markets to legal ones, Spillane said. It also wants the ability to have a say in the type of bets offered. In response to a question from the audience, Spillane said the NBA “likes to think” it doesn’t have an integrity issues with any manipulation or game fixing but “I don’t know what I don’t know.” “The more knowledge you have, the better ability you have to root out any problems,” he said, but the NBA doesn’t have access to any illegal betting markets. “I hope there’s nothing, but I would feel a whole lot better if I was able to see the data and be able to run my own scenarios on that to be able to figure that out,” Spillane said. He said the league doesn’t comment on any investigations but does monitor betting activity. There are educational programs in place for players and league personnel, and firm rules against leaking confidential information to gamblers. Such leaks could lead to a lifetime ban. “We do a fair amount of that (monitoring), regardless of what might happen in the Supreme Court case,” Spillane said. “There is no question we are going to have to do a heck of a lot more if betting is legalized in the U.S. It is going to be costly, but we have (no choice) … there’s betting on our games.” Potential legalization would, however, lead to a lot of “business deals, partnerships and opportunities” for the NBA, he said. Some two-thirds of NBA teams currently have partnerships with tribal properties. A WNBA team is owned by a tribal organization, and one arena is named for a tribe.